We explore a large sample of analysts’ estimates of the cost of equity capital (CoE) to evaluate their usefulness as expected return proxies (ERP). We find that the CoE estimates are significantly related to a firm’s beta, size, book-to-market ratio, leverage, and idiosyncratic volatility...

This paper examines the cross-sectional implications of the inflation illusion hypothesis for the post-earnings-announcement drift. The inflation illusion hypothesis, which was proposed by Modigliani and Cohn (1979), suggests that stock market investors fail to incorporate inflation in...

In this review, I discuss how accounting numbers are used in contracts aimed at mitigating agency problems between shareholders and managers and between shareholders and debtholders. I highlight the reasons why accounting numbers are widely employed in these contracts, even though share prices...

We examine whether financial analysts fully incorporate expected inflation in their earnings forecasts for individual stocks. We find that expected inflation proxies, such as lagged inflation and inflation forecasts from the Michigan Survey of Consumers, predict the future earnings change of a...

Rangan (1998) and Teoh, et al. (1998) argue the failure on part of investors to identify pre-offering earnings management as a cause for the post-offering stock underperformance. This paper re-examines their hypothesis. Like Rangan and Teoh et al., I find evidence of earnings overstatements by...

We construct an earnings based zero-investment portfolio that is related to the business cycle. The portfolio, PMN, is long in stocks that have had high earnings changes in the last quarter and is short in stocks that have had low earnings changes in the last quarter. PMN is related to future...

In recent years there has been a dramatic growth in academic interest in the predictability of asset returns based on past history. A growing number of researchers argue that time-series patterns in returns are due to investor irrationality, and thus can be translated into abnormal profits....

The post-earnings-announcement-drift is a long standing anomaly that is in conflict with market efficiency. This paper documents that the post-earnings-announcement drift occurs mainly in the highly illiquid stocks. A trading strategy that goes long the high earnings surprise stocks and short...

In this paper, we analyze cross-sectional heterogeneity in the time-series variation of liquidity. Average daily changes in liquidity exhibit significant heterogeneity in the cross-section; the liquidity of small firms varies more on a daily basis than that of large firms. A steady increase in...